25
Sep
07

The Cost of Health Insurance

Here’s a question: do you think if health insurance hadn’t become so prevalent health care would be so expensive? Think about that for a few minutes. Now here’s two more: how would the health care system function if insurance didn’t exist? If we actually had to pay the true cost, would we run to the doctor with every sniffle?

I pose these questions, because health care is one of the topics at the center of the UAW’s nationwide strike of GM plants (in 2005, GM spent $5.2 billion on health care). This post isn’t about the validity of unions, corporate greed, employer health care, or even universal health care. Instead, I’m focused on the validity of health insurance in general.

What’s mildly entertaining is that GM was the creator of its own mess. Back during World War II, the government capped wages. To compete in the war-time employee market, companies offered health insurance, which wasn’t classified as an increased wage. After the war and lift of wage caps, employers continued to offer insurance as part of the benefit package. GM, however, didn’t just settle for offering health insurance:

In 1950, GM President Charles Wilson offered to pay 50 percent of the health care costs of his employees. Walter Reuther, national president of the United Auto Workers, initially resisted, believing the cost should be spread across many companies or across the nation, according to a biography of the union organizer.

Reuther gave in, and GM entered the health care business.

In 1961, retirees were included. Three years later, the company began paying 100 percent of health care bills for workers and retirees. (link)

And that’s how you rack up billions in health care. Now, as part of the negotiations between the company and the union:

GM had been pushing hard for the health care trust known as a Voluntary Employees Beneficiary Association, or VEBA so it could move $51 billion in unfunded retiree health costs off its books. GM has nearly 339,000 retirees and surviving spouses. (link)

GM’s issues aside, the mistake people make with insurance is assuming that things will get better and/or cheaper if everyone has it. My aggravation with insurance is that it blinds the buyer to the true cost. For instance, you aren’t likely to you buy food, a car, or a house without knowing the price. But we scream about insurance premiums, deductibles, etc., without knowing what our health care really costs.

Maybe the insurance companies are cheating us, but how can we know that if we don’t understand the real cost of health care? One of the more recent issues of interest is the rising cost of prescription drugs. What if we didn’t request the drugs we see advertised on television and choose a generic version instead? Do you think that would make a difference?

There’s one caveat to my argument that requires acknowledgment. In the case of catastrophic events, like cancer or car accidents, insurance helps balance the risk of life. You can’t exactly weigh your cost options for emergency extrication from a smashed car or chemotherapy and radiation.

As I’ve thought through this issue, I go back and forth (which isn’t a good way to make one’s case). I don’t necessarily have answers to any of the questions I posed earlier. However, the one thing that holds true is the reality that too few people know the real cost of their health care. We lack knowledge when it comes to health care. Perhaps I’m wrong. If so, do you actually know how much your doctor charges (not your co-pay) for an office visit? Next time, ask. You might be surprised. I suspect asking questions is the first step to figuring out the value of insurance and its impact on health care.

Comments?

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8 Responses to “The Cost of Health Insurance”


  1. September 25, 2007 at 9:00 pm

    It’s tough. I (and my family) grew up without insurance* and have never run to the doctor for every sniffle, though I spent my first four years sick much of the time [until my tonsils/adenoids were removed, however we had assistance for my health expenses at that time].

    After college, two days after my college-based insurance expired, I landed in the ER with my first kidney stone attack. That took forever to pay back and I always think about that. I also make sure to ask what tests are being run and why and how much they cost out-of-pocket.

    After I got insurance on my own as an adult (and since I worked for a small company paid a lot for it) I started to go so I could figure out a baseline for my body and make sure that some scary-family-history-things hadn’t yet come to me.

    We did get an answer to something that could have been really bad but determined it wasn’t. My docs realize I won’t go to them unless I feel there is a need and if they try to dream up reasons for me to keep visiting them every few weeks for things I think are silly and just reasons to pad their pockets, or prescribe meds I disagree with (and have to keep taking for no really strong reason), I’ll find another doctor. I am a bit twitchy/”trigger happy” to visit if my ears hurt but it doesn’t necessarily mean I’ll actually go. [which is bad]

    Unless I’m about to fall over I mostly likely still won’t go. Which is really silly. Especially since I have insurance via my husband now and together we pay about 1/10th of what I was when I was single and paying via my small-company job.

    And that is a rant for another day. 😉

    I’m not sure I answered any of your questions.. I find that for some medications, generic makes no difference. For some others, I do notice. I once switched from a brand to a generic and the change was horrendous. I called up the doctor and begged for something else because I started experiencing side effects I hadn’t under the brand. I’ve never specifically requested a brand I’ve seen on TV.

    But that could be due to several medication allergies and my desire for the best medicine at the best price to do what it needs to do. And if I avoid medication… 🙂

    Other rant: Why aren’t dental and eye plans covered or as ubiquitous? teeth -> health. Eyes are necessary to see. We couldn’t really afford that either. My eyes we learned (at age 10) were 20/200, and I got my first pair of glasses. My teeth, I’m still working on.

    Other rant #2: Why do big companies who can pay their employees more get such discounts on insurance? [I do know why, but it still is a huge frustration.]


    * There was about a year when I was between 13-16 that I received health insurance via New York State. I got my chicken pox vaccine that way. At age 9, I lost my father to colon cancer & a heart attack. Which no one knew he had because he never went to the doctor because we had no insurance and couldn’t afford it. A few years ago my mum had a heart attack and we learned that while she had finally received insurance (and at least a few years before the attack) she was either scared to go or still had thought-process of no insurance. Prior to her ER visit her last doctor visit had most likely been when I was born 25+ years earlier. What annoys all of us most is she lied about it!

    ps did i answer anything on point? *sigh*

  2. 2 Britt
    September 26, 2007 at 9:19 am

    I appreciate your story, because it highlights some of the weak points in my argument. I do, however, suspect you’re in the minority when it comes to being super-aware of cost and prescription usage.

    First rant: In theory, I suspect, dental and eye care is still viewed as discretionary. You can “live” with most dental and eye problems.

    Second rant: This question actually reinforces the initial idea of what does health insurance do to the cost of health care? A larger group balances the risk, but forces the “healthy” people to pay more than they otherwise would to balance the risk in the group.

    I think you did answer quite a few things and posed a few more questions. In my mind, there’s a difference between basic care and hypochondriac care. For example, I think ease of access to health care through health insurance plays a role in the over-use of antibiotics, paving the way for super bugs. However, it makes total sense for a yearly physical that confirms general health.

    Research indicates that preventative care goes a long way towards keeping long-term costs down. But again, if you don’t know what it costs even for basic care, there’s no baseline for comparison.

  3. 3 anubis9
    September 26, 2007 at 12:49 pm

    Very interesting ideas, Britt.
    I’d be careful of over generalizations when confronting this issue.
    For example, in arguments, I hear a lot about this majority that “run to the doctor with every sniffle.” But I have yet to meet many of these people, and the few I have met didn’t even have cheap co-pay visits, they just suffered from a slight case of hypochondria.
    Do medical costs really that closely tied to our decisions?
    Would your parents/family/friends have decided to not have children (or as many) if they didn’t have insurance, or if it didn’t cover a certain amount?
    Have you ever heard someone say “we’re going to wait and have kids until we can get 80/20 coverage?”
    I’ve been on both sides of the co-pay insurance, and I can honestly say that I didn’t go to the doctor more when it was just $10.
    Now, I’m one of the “lucky” ones who gets to know exactly what my health care costs are. I get to shop for medical care the same way I shop for bread and laundry soap.
    How long will it be before we see Wal-Mart Medical stores?

    I’m also a little leery of arguments that put much of the responsibility on a single participant in the discussion. You have been fairly fair and balanced, but it’s worth mentioning that in today’s medicine, you have more than just the doctor and the patient. You’ve also got the drug companies with large marketing budgets, the pharmaceutical reps with donuts and tchotskies, the insurance companies with art collections (link)and the hospital board of directors who are looking hard at the bottom line.

    I agree that the system is sick. I don’t believe that GM President Charles Wilson’s goal was to create an industry that sees profits in the hundreds of millions when he first offered health benefits to employees, and I don’t believe Adam Smith in his wildest dreams believed something like that would happen when he proposed his economic theories, but that’s definitely one of the issues we face now. Do profit motivation and health care belong in the same discussion? How do those ideas relate to health care costs?

  4. September 26, 2007 at 12:58 pm

    thanks. or what’s worse is if you know what it costs for basic care or a physical and can’t afford it…

    I agree even though I’m not happy with it. I can see most eye care as “discretionary” but dental has again and again been linked to larger health concerns. i’m frustrated and am embarrassed that I have so much health care available to me for so little monthly pocket cost.. i was talking with a colleague who still has the small-firm coverage I used to. S/he is looking for a dental plan b/c their teeth are starting to bother them and they know if they wait it will cost more, but even now the cost is frightening them off…

  5. 5 Britt
    September 26, 2007 at 1:30 pm

    @anubis9: There’s very little that I disagree with completely in your comment. The question about running to the doctor for sniffles comes from my prior experience on the admin side and seeing the claims reports. The trends indicated that doctor visits were going up, along with total prescriptions for things like antibiotics and “lifestyle” drugs. Given that we were looking at insured populations, I couldn’t tell you if the numbers carried over into a non-insureds.

    As I’ve continued to mull it over, the biggest idea/question, which I strayed away from in the post, is this concept of who knows what health care actually costs? This question applies to both providers and patients. For example, why does an average ambulance trip cost $550? I don’t know the answer, and I have my doubts the hospital could really explain it either, although I suspect salaries, liability insurance, and supplies contribute to that total.

    You make a good point about the decision to have children based on insurance coverage. But after having the children, doesn’t the cost of care impact visits to say the dentist or the eye doctor (nod to penny)?

    I’d also speculate that you are more informed about health care issues that the average consumer. And to your point that you’re one of the “lucky” ones who knows their health care costs, do you believe you’re in the minority or the majority?

    I also appreciate the point about the multiple participants in the industry besides doctors and patients. The question I’d pose back is do you think pharma would be spending millions on advertising and reps if they weren’t confident someone else (insurance providers) would eventually pick up the bill? The same goes for insurance companies. If people weren’t paying the premiums and deductibles, there wouldn’t be money for the art collections.

    For me it comes back to that original question: what’s the impact of insurance on health care costs? I believe that insurance isn’t designed to promote an informed consumer. I also wonder if it would make a difference if doctors, hospitals, and pharma had to itemize x procedure, y test, and z drug costs.

    Then, there’s the question of profit and health care. I share your uncertainty over the combination of the two, but without profit, that leaves the government. The government isn’t known for being thrifty and asking probing questions, so how does a single payor help rationalize costs?

  6. 6 Britt
    September 26, 2007 at 1:34 pm

    @penny: Dental care has publicity issues. We associate braces, and more lately, cosmetic dentistry with this time of health care. It’s not sexy to talk about heart disease related to gum decay. We haven’t yet separated out basic dental care from the cosmetic dentistry like we have with heart surgery and rhinoplasty (i.e., life-saving vs. look-appealing). Until then, I suspect perceptions of dental care, and its necessity, won’t change significantly.

  7. 7 anubis9
    September 26, 2007 at 3:58 pm

    Hmmm?
    You raise some very good questions.
    (And please don’t think I was trying to disagree or argue with you. You’re ideas just got me thinking on certain lines.)

    As far as my insurance status being in the majority/minority. I have to think that it is quickly becoming a majority.

    At my last job, I had insurance with a $10 co-pay, and the owner of the company told me that the Insurance Company tried to get him to switch policies a number of times, but thanks to his legal wrangling on the initial contract couldn’t force him out of the program.

    I agree that initially insurance was not designed to create an informed consumer, but I can’t help but think that that will change. I would even imagine that the change would come from insurance companies themselves, as fewer doctor trips equate to more money in their pockets.

    I think that health care costs suffer from an unwritten “don’t ask/don’t tell” policy, and that nothing bad could come from a more open information exchange.

    I also have to think that there is a mystery even greater than health care costs—insurance costs.
    It seems to me that the fact that Humana was able to build an impressive collection of art from its profits should generate a huge wake-up call to the public.

    What exactly are we paying for!?!

    Do you think pressure to expose the “true cost” of insurance could possibly lead to greater competitive rates?

    Is insurance like the diamond cartel that keeps the market price just where they want it? 🙂

    While I don’t advocate pulling health care out of the free market arena, I don’t think I’m as quick to dismiss the governments involvement as you are.

    In my experience municipal (or even better co-op) utilities and financial institutions have offered some of the best service available.

    Looking back at the New Deal, and things like the Rural Electrification Act makes me think that a government subsidized or low-rate loan program to establish an insurance co-op might not be a bad idea at all.

    That way, everyone has a vested interest to avoid “sniffle” visits, because they are actually part-owners of the company. And because there is no need to generate profits—only cover costs—rates would be kept as low as possible.
    Granted, this would work best on a local or regional level, but I would imagine a lot of providers would be interested in participating in the system as well.

    Hey, I think we’re onto something. 🙂

  8. 8 Britt
    September 26, 2007 at 6:46 pm

    @anubis9: ye gads. I didn’t think you were trying to argue so much as point out some of the gaping holes in my logic or lack thereof. 🙂

    I agree with everything you’ve said. However, and yes, I’m harping, I’m still not seeing a solution to addressing the question of why health care costs keep going up. Your idea for a co-op solution is very interesting. I think you’re on to something…

    But I’m still perplexed at health care costs and don’t see any obvious solution to addressing the question. I think your comparison of insurance companies to diamond cartels is spot on, and I’m not sure how you pressure insurance companies to reveal the true cost.


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